shale story featuring awe

http://www.energynewsbulletin.net/storyview.asp?storyid=9639437§ionsource=s0

Slugcatcher brings news from the shale gas front
Monday, 15 October 2012

WHEN does revolution become evolution? That’s a question which interested Slugcatcher last week as he watched the world’s march into an unconventional gas future pick up speed in four separate events.

Knowing which was the more important is for anyone to judge but it included news that six companies have applied for licences to export oil from the US; rig activity in the US has dropped sharply but gas production continues to rise; oil and gas production drilling through shale beds stretched out to a record 15,000 feet (4.5km), and Australian petroleum company AWE reported further strong flows from its Senecio No.2 well in the North Perth Basin.

Of those developments the three which seem to be the most important occurred in the US, home of the original discovery that tight oil and gas can be produced with the correct combination of drilling and rock-fracturing technology.

But, the fact that Australia’s future will include significant production of oil and gas from tight rocks ensures that international developments will be closely watched, especially as rising unconventional production adds to the looming clash between high-priced renewable sources of energy and cheaper gas.

In time, the tight gas revolution will spread to Europe and China, which are estimated by the US Energy Information Administration to contain the world’s biggest (China at 175 trillion cubic feet) and third biggest (Europe at 639tcf) shale gas reserves – with China’s status of particular interest to Australia’s LNG export sector.

China and Europe are well into the future compared with the four events that last week caught The Slug’s eye because each can be seen as part of a revolution morphing into an evolutionary process that is both deeply significant from a scientific perspective and game changing economically.

The first item on the list, applications for the right to export oil from the US, falls into the utterly astonishing category because it really does seem like yesterday that the US energy flow was one-way traffic, with the country importing more (and paying more) every year.

There’s no evidence yet that oil exports will go much further than near neighbours such as Canada and Mexico but the fact that at least two of the world’s oil majors, Shell and BP, plus the world’s biggest oil trader, Vitol, have asked for government permission to start exports is a huge development which was reported on Friday by London’s Financial Times newspaper.

According to the FT the proposals submitted could involve the first major oil exports from the US in decades, potentially changing the global oil trade, and putting downward pressure on the price of oil in Europe.

It’s going too far to call it an oil equivalent of the Marshal Plan but an injection of US oil could be a cheaper-energy jolt that Europe needs to kick-start its moribund economy.

Apart from that, it’s also a way for US oil producers to capitalise on the $US20 difference between the West Texas Intermediate oil price ($91.60 a barrel on Friday) and the Brent price ($114.60/bbl).

There is of course another factor at work, profit, and that lies in the oil companies playing an arbitrage game, buying US oil at the WTI price and selling it at the Brent price – something that might happen thanks to the shale-oil surplus in parts of the U.S.

The phenomena of fewer rigs and rising gas production is partly a result of the gas price sinking below break-even for many producers, but also a result of tight-gas extraction technology continuing to improve – as seen in reports that Continental Resources had pushed a horizontal well out to a world record 4.5km and that many regular wells which once travelled no more than 350m are now routinely reaching 1000m.

In other words the operating rig count might have dropped by the 53% reported by Baker Hughes but the rigs still working are penetrating an increasing ratio of oil-and-gas productive rock.

As for Australian and European shale, the revolution remains just that, because production lags so far behind the evolutionary US.

Europe is yet to make significant shale gas discoveries whereas Australia is moving ahead rapidly thanks to most of its land mass being unoccupied by human settlement, a factor in news from the leading shale-gas address, the Cooper Basin, and AWE’s Senecio No.2 news.

The importance of the AWE announcement was not so much the stabilised gas flow rate of 1.35 million cubic feet a day, but the fact that with the gas came 65 barrels of oil and condensate, and that it came from 5m perforation, a tiny slice of the thick beds of shale with gas (and oil) production potential.

What a week! Fewer rigs and more gas in the US, plus further evidence of the US shifting from energy importer to energy exporter, finishing with a remarkably encouraging tight-gas (and oil) flow in Australia.

The game continues to change.